Court includes unallocated capex in capital employed for sec 80J deductions, rejects depreciation argument.

Commissioner Of Income-Tax Versus Advani Oerlikon Private Limited

Commissioner Of Income-Tax Versus Advani Oerlikon Private Limited - [1986] 161 ITR 449, 52 CTR 174, 24 TAXMANN 392 Issues:
Whether unallocated capital expenditure should be included in the computation of capital employed for the purpose of section 80J of the Income-tax Act, 1961.

Analysis:
The case involved a question regarding the inclusion of unallocated capital expenditure in the computation of capital employed for the purpose of section 80J of the Income-tax Act, 1961. The assessee, a company manufacturing welding electrodes, had included an amount of Rs. 6,73,500 described as unallocated capital expenditure in the capital employed for setting up a unit. The Income-tax Officer refused to include this amount, stating it did not represent fixed assets used in the business as of a specific date. However, the Appellate Assistant Commissioner and the Tribunal held that the expenditure formed part of the capital employed, even if not allocated to specific assets. The Tribunal relied on a previous decision and concluded that the unallocated amount should be included in the capital computation for the purpose of calculating deductions under section 80J.

The High Court referred to a previous decision in a similar case, where it was held that capital employed for acquiring assets for a business remains employed in the business, even if the assets are not yet used. Based on this precedent, the Court determined that the assessee was entitled to include the unallocated amount in the computation of capital employed for section 80J benefits. The Commissioner's argument that the unallocated amount should not be included due to difficulties in calculating the depreciated written down value was dismissed by the Court. The Court explained that the written down value of assets entitled to depreciation should be considered, and in this case, as the plant and machinery were not yet used, depreciation was not applicable. Therefore, the Court upheld the Tribunal's decision to include the unallocated amount in the capital computation.

In conclusion, the High Court answered the question in the affirmative, in favor of the assessee, stating that the unallocated capital expenditure should be included in the computation of capital employed for the purpose of section 80J. The Court also directed the Revenue to pay the costs of the reference to the assessee.